Cattlemen Pay a Price for Dairy Operators' Windfall

After 30 years in the dairy business, Joe Gonsalves expects to leave in style, with a government check for $8 million.

"It's almost like one of those lottery tickets," a bemused Gonsalves said last week as he contemplated life without the daily care and feeding of the 3,700-head herd that he and his three sons manage outside Hanford in the San Joaquin Valley.

Gonsalves, a native of the Azores who came to California 32 years ago, is one of the big winners in a unique, $1.8-billion federal program that aims to reduce the nation's 11.1-million-head dairy herd by 1.55 million over 18 months--enough to slash milk production by 8.7%. More than 182,000 cows, heifers and calves will be eliminated in California, the second-largest dairy state after Wisconsin, bringing their owners a total of $277.1 million. That is more than $100 million more than any other state's total.

Statewide, the average payment to the 325 participating dairy operations is about $850,000, according to the California Cattlemen's Assn.--the big loser in the program.

"We got kicked right in the teeth," said John Ross, executive vice president of the Sacramento-based trade association. "We've got some people who have lost more than $800,000 in inventory value because of lower beef cattle prices."

Already depressed beef-cattle prices fell another 10% as slaughtering of the dairy cattle began last month, though it has recovered somewhat since, Ross said.

Nationally, cattlemen only reluctantly accepted the so-called whole-herd buyout program as part of the 1985 farm bill, but they sued in U.S. District Court in Lubbock, Texas, to block further slaughtering after it became clear that nearly two-thirds of the dairy cattle were to be dispatched by the end of August.

The California cattlemen will intervene in the case this week, Ross said.

Judge Halbert O. Woodward last week ordered the U.S. Department of Agriculture to develop a plan by June 1 to stagger the slaughter in such a way as to avoid further glutting the red-meat market.

At a hearing April 22, representatives of cattlemen estimated that the program had cost the cattle industry $25 million in lost revenue in just the first week of April and cut the value of cattle on inventory by $2 billion.

In his decision, Woodward concluded that Agriculture Secretary Richard Lyng "failed to issue any regulation as required and mandated by the Congress that would provide for meaningful marketing procedures. Such failure to issue a regulation and to take feasible steps constitute arbitrary and capricious acts on the part of the defendants."

Woodward said the cattlemen successfully proved that their industry has been harmed and will continue to suffer losses unless relief is granted. While there is no way to recover losses already incurred, he said, new regulations can prevent further losses.

The government said Friday that it will ask Woodward to reconsider and "clarify" his decision.

Undersecretary Daniel G. Amstutz said that, unless the ruling is lifted, the present program "clearly will require modification." Clarification is needed in order to develop a different marketing plan, Amstutz said.

Ross said the heavy early slaughtering particularly hurt cattlemen in California where more beef is marketed in the spring than is the case elsewhere. Shifting more of the slaughter to the fall would minimize the depressing effect on California beef prices, he said.

In the so-called whole-herd buyout program, USDA invited the nation's dairy operators to estimate the production value of their herds and make the government an offer. Bids ranged from $3.40 per 100 pounds of milk production, or about 12 gallons, to more than $1,000, and averaged $14.88 nationwide.

USDA announced March 28 that it was accepting all bids below $22.50--putting Joe Gonsalves' $22 bid just below the maximum. To calculate the buyout price, USDA multiplies the price per hundredweight times a farm's established production base for calendar year 1985 or for a 12-month period from mid-1984 to mid-1985, whichever is lower.

In exchange, participating dairy operators must stay out of the business for five years.

Gonsalves said he doesn't expect to return to dairy farming in 1991, when he will be 59, but his three sons--John, 24, Anthony, 26, and Steve 28--probably will.

"I'll provide the cows, put them back in business," he said, "provided they assume the responsibility."

Dairy operators are contributing 38% of the program's $1.8-billion cost through assessments on milk production with taxpayers--including unsubsidized cattlemen--paying the rest, the unsubsidized cattlemen noted.